Taxation Law Case Study

This case study analyzes the taxable income for June based on various cash inflows, including salary, gifts, retainer income, and compensation payments. It discusses the assessable income according to Australian taxation law, referencing relevant tax rulings and literature. The total assessable income for June is calculated to be $3,255,500, providing insights into the application of taxation principles.

TAXATION LAW
Question 1
The objective is to determine the taxable income for June based on the given information.
The various cash inflows that June has received would be analysed to determine whether
there would be any contribution to the assessable income or not.
 Salary of $ 22,500 from Bo-tom University – This would be reflected as assessable
income in line with s. 6(5) ITAA 1997 as salary would constitute ordinary income.
Ordinary income is one of the sources to assessable income for the taxpayer (CCH,
2013).
 Previous year salary paid this year – This would be reflected as assessable income in
the previous year statement only and the same would not be considered as assessable
income for the current year (Gilders et. al., 2016).
 Four Tickets to the Opera- This would not be assessable income and would instead be
termed as gift due to which no tax would be levied. The various conditions which
make this gift are as follows (Barkoczy, 2017).
1) June has been actually given the tickets and hence ownership transfer is taking
place.
2) June has not asked for the same which is apparent from the one-off and
unexpected nature of the gift.
3) There are no reciprocal expectations in the present or future related to the given
extension of ticket.
4) Further, the extension of tickets is an act of benefaction directed towards June.
 Retainer income from CIY – With regards to assessing income, there are two methods
namely the receipts method and the earnings method. For the retainer, assuming that
the money paid is non-refundable, hence the receipt method is suitable for recognition
of the same in line with tax ruling TR 98/1 (Sadiq et. al., 2016). Hence, the retainer
income to the tune of $ 250,000 would be considered as assessable income for the
year ending on June 30, 2016.
 Fees revenue from CIY – Again, it needs to be determined as to which method would
be found suitable for recognition of assessable income. Since the income in the given
case is being derived on the basis of skills and not any capital goods, hence in line
with TR 98/1, the receipt method would be found most suitable (Deutsch et. al.,
2016). As a result, the total receipts in the given year would be recognised as
assessable income which would stand at $2,920,000.
 Compensation payment for CIY- In relation to compensation, the nature of the
receipts is decided by the underlying purpose for which these are provided. In the
given case, out of the total compensation of $ 400,000 about $63,000 was provided by
the insurer for the loss of profit (Barkoczy, 2017). Hence, only $ 63,000 would be
considered as revenue receipts and hence would contribute to assessable income while
the remaining component would be capital receipts and hence non-taxable.
Hence, based on the above discussion, total assessable income for June (FY2016) = 22500 +
250000 + 2920000 + 63000 = $3,255,500

TAXATION LAW
References
Barkoczy, S. (2017), Foundation of Taxation Law 2017, 9thed., North Ryde: CCH
Publications
CCH (2013), Australian Master Tax Guide 2013, 51st ed., Sydney: Wolters Kluwer
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2016), Australian tax
handbook 8th ed., Pymont: Thomson Reuters,
Gilders, F., Taylor, J., Walpole, M., Burton, M. and Ciro, T. (2016), Understanding taxation
law 2016, 9th ed., Sydney: LexisNexis/Butterworths.
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A
(2016) , Principles of Taxation Law 2016, 8th ed., Pymont:Thomson Reuters